Past Lessons, Future Gains: SPP offers recommendations for improving collective schemes role in current pensions landscape

The Society of Pension Professionals (SPP) has published a thought leadership paper “Past Lessons, Future Gains” which examines the case for DB and CDC pension schemes in the modern pensions landscape.

As the paper explains, the move away from DB schemes in the past decades has seen huge gaps opening up between those who have defined benefits and those who do not, and has been a major contributor to a looming pensions adequacy crisis.

The paper goes on to state, “It is essential that we learn the lessons of the past in forming the policies of the future, so that we can fix this problem for future generations and crucially, avoid making it worse.”

Key recommendations include;

• Government steps to improve adequacy in retirement should not be restricted to a review of Automatic Enrolment contributions – the nature of the pension scheme that individuals are contributing to is another fundamental consideration, one which has largely been ignored as employers have switched out of DB and into DC.

• Policymakers should aim for a stable and sufficiently flexible regulatory regime for DB schemes, and should examine the potential benefits of enabling and encouraging the release of DB surplus assets; conditional indexation; and innovations to make longevity hedging more efficient.

• Amendments to the current tax landscape should be considered to enable DB schemes to release surplus, support pensions adequacy objectives and encourage innovation in collective pension provision. For example, allowing trustees to make one-off payments to members as an authorised payment in conjunction with a release of surplus.

• Policymakers should decide how any surplus in the PPF should be used and implement its preferred approach as soon as practicable. Consideration should be given to using some of this surplus to support policies that will enable other collective schemes to thrive, where such policies require capital investment or ongoing funding.

• In relation to CDC schemes, policymakers should consider support mechanisms for smaller schemes, such as pooled arrangements or simplified regulatory requirements, to ensure broad access. They should also align the timing of the availability of Decumulation-CDC arrangements with the roll-out of default DC retirement income requirements.

Jon Forsyth, Chair of the SPP DB Committee, said;

“The SPP’s experts in the fields of DB, investment, CDC and more, have collaborated to create this paper, in which we explore the case for policies that will enable collective schemes, including DB and CDC, to thrive in the decades to come.

We believe this is essential to a healthy future pensions landscape that provides UK employees with a secure and comfortable retirement, whilst also benefitting the wider economy in terms of reduced reliance on the State and increased disposable incomes.”